I. INTRODUCTION

*1 Plaintiff, Vitamin Energy, LLC (“Vitamin Energy” or “VE”), initiated this action against Defendant, Evanston Insurance Company (“Evanston”). This Court previously granted Evanston's Motion for Judgment on the Pleadings. The Court of Appeals reversed, and this case proceeded to discovery.

Now before the Special Master is Vitamin Energy's Motion to Compel (Doc. 136), Vitamin Energy's Motion for Discovery of Evanston's Financial Condition (Doc. 153), Evanston's Motion to Compel Vitamin Energy to Comply with Evanston's Discovery Requests (Doc. 166), Evanston's Motion to Compel Compliance with the Subpoena Issued upon Brian C. Goodman & Associates, P.C. (Doc. 158), and Evanston's Letter Motion for Permission to Conduct an Additional Deposition (Doc. 192).

After reviewing all relevant filings, for the reasons set forth below, the Special Master recommends that the Court:

II. FACTS AND PROCEDURAL HISTORY

A. Vitamin Energy's Claim

The Special Master provided a detailed summary of this case's history in his previous Report and Recommendation. (Doc. 191). On July 23, 2018, VE and Evanston entered into a General Liability Insurance Policy Agreement (“the Policy”). (Doc. 137, Ex. A). The Policy afforded VE coverage from July 23, 2018 through July 23, 2019 and required Evanston to defend and indemnify VE for “[damages as a result of Claims first made against [VE]... for Personal Injury or Advertising Injury”. Id. Advertising Injury is defined by the policy as:

The Policy also lists a number of exclusions that bar coverage. Id.

On June 10, 2019, VE was sued in the United States District Court for The Eastern District of Michigan by International IP Holdings, LLC and Innovation Ventures, LLC (“5-hour Energy”), the owners of trademarks for 5-hour Energy liquid energy shots. (Doc. 137, Ex. B). In that litigation (“the Michigan Lawsuit”), 5-hour Energy asserts claims against VE under the Lanham Act for trademark infringement, false designation of origin, false advertising, and trademark dilution, along with state law claims for trademark infringement, indirect trademark infringement, and unfair competition. Id. Among the wrongs 5-hour Energy alleges VE has committed is “false and misleading comparative advertising” regarding the benefits of VE's products relative to competing products—including 5-hour Energy's. Id.

*2 On June 13, 2019, VE notified Evanston of the Michigan Lawsuit and requested coverage under the Policy. (Doc. 136-1 at 3). On July 10, 2019, Evanston issued a coverage disclaimer, asserting that the complaint in the Michigan Lawsuit does not allege an Advertising Injury, or any other injury covered by the Policy, and that, even if it did, various coverage exclusions would excuse coverage. Id. Evanston disclaimed both its duty to indemnify and to defend VE in the Michigan Lawsuit. Id.

B. The Coverage Lawsuit

On July 22, 2019, VE filed suit against Evanston in the Philadelphia County Court of Common Pleas, seeking a declaratory judgment to compel Evanston to defend VE in the Michigan Lawsuit and adding claims for breach of contract and bad faith in violation of 42 Pa.C.S. § 8371. (Doc. 136-4, Ex. 15). VE seeks compensatory damages, interest, punitive damages, costs, and attorney's fees. (Doc. 137 at 19). On August 14, 2019, Evanston removed the case to the Eastern District of Pennsylvania. (Doc. 1).

After the Parties cross-moved for judgment of the pleadings, this Court granted Evanston's motion and held that the complaint in the Michigan Lawsuit did not allege an Advertising Injury, as defined by the policy, and that, as such, Evanston had neither a duty to indemnify nor defend Vitamin Energy. (Doc. 46). VE timely appealed. (Doc. 51). On January 5, 2022, the Third Circuit reversed, holding that Evanston did have a duty to defend VE in the Michigan Lawsuit, and remanded the case to this Court. (Doc. 136, Ex. M).

C. The Parties' Discovery Disputes

On March 16, 2022, Evanston served VE with a set of requests for production of documents and interrogatories. (Doc. 166, Ex. B). On April, 12, 2022, the Court approved the Parties' stipulated order governing electronic discovery (“the ESI Order”). (Doc. 79). Pursuant to the terms of the ESI Order, VE identified several custodians likely to possess discoverable electronically stored information (“ESI”). (Doc. 166, Ex. A at 2). On May 6, 2022, VE produced written responses to Evanston's discovery requests and produced 2,288 documents, including balance sheets, profit and loss statements, cash flows, sales data, accounts receivable summaries, accounts payable summaries, and audited financial statements for 2019 and 2020. (Doc. 185 at 6). On July 7, 2022, Evanston sent VE a letter, identifying what it claimed were deficiencies in VE's responses and seeking supplemental responses to cure the alleged defects. (Doc. 166, Ex. D). Thus began a months-long discovery dispute, with Evanston alleging that VE withheld (and continued to withhold) thousands of responsive documents and VE countering that it did comply, and/or that it had corrected any deficiencies. (See Doc. 166-1 at 3-6); (See Doc. 185).

In August and September of 2022, Evanston deposed several of the individuals identified by VE as ESI custodians. (Doc. 166-1 at 10-16). When VE's counsel met with the custodians for their deposition, they discovered the custodians had not searched their personal computers for responsive documents. (Doc. 185-1 at 5). Counsel for VE certify that they then searched the custodians' computers and emails per the terms of the ESI Order and produced all responsive documents to VE. Id.

On November 7, 2022, VE filed a Motion to Compel seeking the production of unredacted reserve information contained in Evanston's claims notes.[1] (Doc. 136). On December 12, 2022, VE filed a Motion for Discovery of Evanston's Financial Condition, arguing that VE's claim for punitive damages entitled it to financial discovery. (Doc. 153).

*3 On November 29, 2022, Evanston served VE's accountant, Brian C. Goodman & Associates, P.C. (“Goodman”), with a notice of subpoena, seeking information regarding VE and the Michigan Lawsuit. (Doc. 158, Ex. 2). Goodman objected to the subpoena on December 12, 2022. (Doc. 158, Ex. 1).[2] On December 16, 2022, Evanston filed a Motion to Compel Goodman to Comply with the Subpoena. (Doc. 158).

On December 19, 2022, Evanston filed a Motion to Compel seeking production of:

(See Doc. 166-1, 17-22). Evanston also seeks sanctions and an order compelling VE to submit to a forensic inspection of its records, at VE's own expense. Id. at 18.

On February 7, 2023, Evanston filed a letter motion seeking leave to depose the corporate designee of ClearList, LLC (“ClearList”), a non-party previously retained by VE to manage its capitalization table and introduce potential investors.[4] (Doc. 192 at 1); (Doc. 193 at 1).

On December 22, 2022, the Court appointed the Special Master to resolve various discovery disputes, including those described above. (Doc. 170).[5]

III. STANDARD OF REVIEW

Pursuant to Federal Rule of Civil Procedure 26(b)(1), the scope of discovery is “any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case.” Relevancy is “construed broadly to encompass any matter that bears on, or that reasonably could lead to other matters that could bear on, any issue that is or may be in the case.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978) (citing Hickman v. Taylor, 329 U.S. 495, 501 (1947)).

A party may seek an order to compel discovery when an opposing party fails to respond to discovery requests or provides evasive or incomplete responses. See Federal Rule of Civil Procedure 37(a). When a party moves to compel discovery pursuant to Federal Rule of Civil Procedure 37, the moving party bears the initial burden of proving the relevance of the material requested. See Morrison v. Phila. Housing Auth., 203 F.R.D. 195, 196 (E.D. Pa. 2001). Once relevancy has been established, the party objecting to the discovery request bears the burden of showing why the request is improper. See Northern v. City of Philadelphia, 2000 WL 355526, at *2 (E.D. Pa. Apr. 4, 2000); Momah v. Albert Einstein Med. Ctr., 164 F.R.D. 412, 417 (E.D. Pa. 1996).

IV. THE SPECIAL MASTER'S ANALYSIS

A. VE's Motion to Compel (Doc. 136)

*4 VE argues that Evanston's reserve information is relevant and discoverable. (Doc. 136-1 at 13). An insurance reserve is a pool of funds allocated to satisfy obligations that may arise under a claim. PECO Energy Co. v. Ins. Co. of N. Am., 852 A.2d 1230, 1232 n. 3 (Pa. Super. 2004). Pennsylvania law requires insurance companies to set aside reserves when they are placed on notice of possible claims. Fid. & Deposit Co. of Maryland v. McCulloch, 168 F.R.D. 516, 525 (E.D. Pa. 1996). VE relies on Penn-Dion Corp. v. Great Am. Ins. Co. of New York, a bad faith action in which this Court ruled that an insurance company's reserve information was relevant and discoverable. 2019 WL 3202503, at *6 (E.D. Pa. 2019) (Slomsky, J.). VE argues that Penn-Dion mandates discovery of insurance reserve information in all bad faith actions. (Doc. 136-1 at 13-14). The Special Master disagrees for the reasons set forth below.

In Penn-Dion, the insured owned a commercial building which was damaged in a fire. Id. at *1. The insured brought a bad faith action against its insurer after it denied two of the insured's three claims and settled the remaining claim for $48,682. Id. In its complaint, the insured alleged not only that the insurance company's disclaimer was in bad faith, but that it undervalued the insureds claim by using inflated depreciation rates and other measures. Id. at *4.

The Court noted that the Third Circuit is divided as to the discoverability of bad faith claims. Id. at *5. Some courts have held that reserve information is confidential and should only be disclosed in exceptional circumstances. See e.g., Kaufman v. Nationwide Mut. Ins. Co., 1997 WL 703175 (E.D. Pa. Nov. 12, 1997) (Rueter, M.J.) (“the procedure for setting reserves...is confidential information which a court should not order to be disclosed unless the relevance of this information is clear, and disclosure is necessary.”). However, the prevailing view in the Third Circuit is that reserve amounts are generally “germane to any analysis [the defendant] made of the claim's value, and whether [the] defendant acted in bad faith in processing the claim.” Oak Lane Printing & Letter Serv., Inc. v. Atlantic Mut. Ins. Co., 2007 WL 1725201, at *4 (E.D. Pa. June 13, 2007). This Court adopted the prevailing view, quoting approvingly the Middle District of Pennsylvania's explanation in Barnard v. Liberty Mut. Ins. Co., Penn-Dion. 2019 WL 3202503, at *5 (quoting 2019 WL 461510 (M.D. Pa. Feb. 6, 2019)).

In Barnard, an insurance company provided first-party medical and income loss benefits to its insured after an automobile accident. 2019 WL 461510, at *1. The insured brought a bad faith claim after the insurance company determined her treatments were no longer necessary and terminated her benefits. Id. The insured sought to discover the insurance company's reserve information. Id.

The Barnard Court acknowledged that reserves “may be discoverable in a bad faith action when the claim relates to the insurer's failure to settle or where there is a discrepancy regarding the value of the claim.” Id. at *5. However, the Court explained that “when [a] bad faith claim is based on a denial of coverage and does not involve the value of the claim or [the insurer's] estimation of liability, the reserve information requested is neither relevant nor reasonably calculated to lead to the discovery of admissible evidence.” Id. at *6. Accordingly, the Court held that because “[plaintiff's] claim focuses on the denial of coverage based on a biased and unfair review process rather than the value of her claim... discovery of the insurer's reserve information would not be relevant to the bad faith claim.” Id. (emphasis added).

*5 Unlike the Plaintiff in Penn-Dion, VE's allegations do not involve the value of its claim or Evanston's estimation of liability. (Doc. 137 at 17-19). Rather, like the plaintiff in Barnard, VE alleges that Evanston disclaimed coverage based on a biased and unfair review process. Id. The amount that Evanston set aside in reserve for VE's claim has no probative value as to whether Evanston disclaimed coverage in bad faith. As such, the Special Master recommends that the Court deny VE's motion to compel production of Evanston's reserve information.

B. VE's Motion for Discovery of Evanston's Financial Condition (Doc. 153)

VE's second set of requests for production seeks documents relating to Evanston's financial status. (Doc. 153-1). Discovery of a defendant's financial information is permitted where the plaintiff demonstrates a “well-founded possibility” of punitive damages. Shelton v. Cnty. of Chester, 2015 WL 5460623 (E.D. Pa. Sept. 16, 2015) (McHugh, J.). As Evanston notes in its response brief, “the production of an expert report establishes the requisite prima facie basis to recover punitive damages so as to be entitled net worth discovery.” (Doc. 174 at 5). VE has retained an expert to opine on Evanston's alleged bad faith and expert reports are due April 12, 2023. (Doc. 179 at 5); (Doc. 171). It would be premature to rule on VE's motion before that time. Accordingly, the Special Master recommends that the deadline for discovery of Evanston's financial condition be continued to May 10, 2023—the existing deadline for expert discovery. Should the Court accept this recommendation, the Special Master will make a recommendation on VE's Motion for Discovery after VE has produced its expert report.

C. Evanston's Motion to Compel VE to Comply with Evanston's Discovery Requests (Doc. 166)

Per court order, VE produced its 2018 and 2021 tax returns on August 31, 2022. (Doc. 185 at 23). Evanston claims that VE has withheld attachments to the returns. (Doc. 166-1 at 24). Evanston raised the issue with VE in a November 29, 2022 e-mail. (Doc 185, Ex. 27 at 1). On December 2, 2022, VE replied that it had “reached out to its accountants to inquire” about the attachments and would keep Evanston apprised of any developments. (Doc. 185, Ex. 28 at 3). VE now claims that, because of the intervening holidays, it “has not had the opportunity to do so.”[6] (Doc. 185 at 25). The holiday season cannot excuse a months-long delay. As it is now mid-February, the Special Master recommends that the Court order VE to produce any attachments to the 2018 and 2021 tax returns.

Evanston also seeks signed tax return authorizations “so it can receive a complete and authentic copy of Vitamin Energy's tax returns”. (Doc. 166-1 at 24). Given the above recommendation to compel VE to produce any tax return attachments, an authorization is unnecessary for Evanston to obtain complete returns. Accordingly, the Special Master recommends that Evanston's request for tax return authorizations be denied.

On November 29, 2022, Evanston requested that VE search a document management system, referenced by VE ESI custodian Larry Greenway in his deposition, for responsive documents. (Doc. 185, Ex. 27 at 1). On December 2, 2022, VE replied that it had “asked Mr. Greenway to search his computer again for documents he mentioned during his deposition” and that it would “update [Evanston] on this as soon as more information is available.” (Doc. 185, Ex. 28 at 3). VE has not raised a substantive objection to producing the documents. (Doc. 185 at 25). As such, the Special Master recommends that VE be compelled to produce any and all responsive, non-privileged documents stored on the document management system.

*6 Evanston claims that VE's capitalization tables are relevant in light of VE's allegations “that it was unable to secure key investors due to Evanston's disclaimer of coverage”. (Doc. 166-1 at 21). Evanston has met its initial burden of demonstrating the tables' relevance by arguing that they will reveal who VE's investors are and reveal its real and phantom stock issuances. Id. VE's sole argument as to why production would be improper, beyond boilerplate assertions that the tables are “irrelevant and immaterial”, is that productions of the tables would be cumulative, as VE has already provided Evanston with a list of its investors. (Doc. 185 at 20).

As an initial matter, it is not clear that production of the capitalization tables would be cumulative, as capitalization tables generally include additional information beyond the names of a company's investors, such as share price and percentage ownership. Furthermore, the Rules of Civil Procedure allow courts to limit discovery when it would be unreasonably cumulative. Fed R. Civ. P. 26(b)(2)(C)(i). To the extent that discovery of the capitalization tables is cumulative, VE has presented no facts to suggest that it would be unreasonably so. There is no reason to believe that production would be unduly burdensome or costly. As such, the Special Master recommends that the Court compel VE to produce its capitalization tables.

Evanston argues that VE's claim for consequential damages entitles Evanston to the discovery of stock agreements between VE and its counsel, Attorney George Schooff. (Doc. 166-1 at 22-23). In its Response Brief, VE asserts that it “will not assert that payments that Vitamin Energy may make to Mr. Schooff for his work on this litigation—whether in the form of stock or otherwise—are part of its damages.” (Doc. 185 at 22). The Special Master finds this representation sufficient. As VE will not seek damages for Attorney Schooff's compensation, any stock agreements between VE and Attorney Schooff are irrelevant to this litigation. Accordingly, the Special Master recommends that the Court deny VE's attempt to compel production of any stock agreements between VE and Attorney Schooff.

Evanston alleges that VE has failed to fully respond to Evanston's discovery requests and demands a forensic inspection of VE's files, at VE's expense. (Doc. 166-1 at 3-8). Evanston claims that (1) several individuals who VE had designated as record holders produced responsive documents, after they were deposed, which VE had theretofore not produced and (2) in response to subpoenas, various third parties produced numerous communications with VE not produced by VE. Specifically, Evanston claims that VE has not produced settlement communications in the Michigan Lawsuit, investor communications, and VE's communications with Butzel Long.

VE asserts that it has either already produced these documents and/or that Evanston already has all responsive documents in VE's possession. (See Doc. 185 at 19-25). Evanston claims it cannot rely on VE's representations given its past conduct and seeks an order compelling VE to submit to a forensic inspection of its records at its own expense. (Doc. 166-1 at 18). Evanston also argues that VE's conduct calls into question the accuracy of the financial records it has produced and requests an order compelling the production of VE's backup accounting for verification. Id. at 21-22.

Counsel for VE, Attorney Reid Winthrop, certifies, under penalty of perjury, that, after he discovered that the record custodians had not searched their personal computers for responsive documents, he and Attorney Schooff worked with the custodians to collect any responsive documents and produced them to Evanston. (Doc. 185-1 at 5). Attorney Winthrop further certifies that VE “has fully complied with the ESI Order and conducted all reasonable and necessary searches of all computer and e-mail systems... and produced all relevant, non-privileged, and otherwise non-objectionable documents in its possession, custody and control.” Id. at 6. Attorney Winthrop's certification is sufficient to assure the Special Master that any deficiencies in VE's production were unintentional and have been rectified. Accordingly, the Special Master recommends that the Court deny Evanston's request to compel a forensic inspection of VE's records and production of its backup accounting. Similarly, at this late stage of discovery, the Special Master recommends against compelling VE to produce documents already in Evanston's possession.

*7 However, given the Parties' ongoing discovery disputes and VE's admittedly late productions, the Special Master appreciates Evanston's desire for assurance that VE has diligently complied with discovery. As such, the Special Master recommends that the Court order VE and its counsel to certify, under penalty of perjury, that VE has conducted a thorough and diligent search for any and all relevant and non-privileged documents responsive to Evanston's requests, including, but not limited to:

VE should further certify that it has produced all responsive documents not already in Evanston's possession and that it has logged all documents withheld.[7]

D. Evanston's Motion to Compel Compliance with Subpoena Issued Upon Goodman (Doc. 158)

VE seeks the production of the following documents from Brian C. Goodman & Associates, P.C. (“Goodman”):

(Doc. 158-2 at 14).

A party may serve a subpoena on a non-party to “produce designated documents, electronically stored information, or tangible things in [the non-party's] possession, custody or control.” Fed. R. Civ. P. 45(a)(1)(A)(iii). If the requesting party demonstrates that the requested documents are relevant, the burden shifts to the subpoenaed party to explain why discovery should not be permitted. In re Domestic Drywall Antitrust Litig., 300 F.R.D. 234, 239 (E.D. Pa. May 15, 2014) (Baylson, J.). The “standards for non-party discovery require a stronger showing of relevance than for party discovery.” Zukoski v. Philadelphia Elec. Co., 1994 WL 637345, at *3 (E.D. Pa. Nov. 14, 1994) (VanArtsdalen, J.); see also, S.G. v. West Willow Fire Co., 2017 WL 11550403, at *3 (E.D. Pa. June 28, 2017) (Leeson, J.) (“where the relevancy of the information is in doubt, the fact that the discovery is sought from a non-party supports the finding that the material is not subject to discovery”). If the non-party meets its burden, “the court may nonetheless order discovery from such sources if the requesting party shows good cause”. In re Domestic Drywall Antitrust Litig., 300 F.R.D. at 239.

*8 In the preceding section, the Special Master recommended that the Court compel VE to produce the attachments to its 2018 and 2021 tax returns, investor communications, and capitalization tables. For the sake of efficiency, the Special Master recommends that Evanston's attempt to compel production of those same documents from Goodman be denied.

As for the other documents sought, Evanston argues that they are necessary to “provide the background necessary to assist Evanston in assessing the merits of Vitamin Energy's claim that it lost tens of millions of dollars as a result of Evanston's denial of a defense.” (Doc. 180 at 6). The requests in Evanston's subpoena, however, go far beyond the sort of financial “background” information necessary to assess VE's damages claim. As an example, Request 4 of the subpoena demands “[a]ny and all records, notes, electronic communications, including any electronic data transaction file reflecting, referring, and relating to Vitamin Energy and/or Richard Gorman”. (Doc. 158-2 at 14). This request alone would require production of Goodman's entire VE file.

Evanston also argues that, although VE has produced balance sheets, profit and loss statements, cash flows, sales data; accounts receivable summaries, accounts payable summaries, audited financial statements for 2019 and 2020, and tax returns for 2018 and 2021, the data in these allegedly “self-serving” documents may be misleading and supporting documentation is necessary to verify their accuracy. (Doc. 180 at 7). As discussed in the preceding section, the Special Master does not believe the record supports Evanston's allegations that VE has acted dishonestly and does not find this to be a compelling argument in favor of the requested information's relevance. The Special Master finds that Evanston has not met the heightened standard of relevancy necessary for non-party discovery, especially given the documents VE has already produced or the Special Master has recommended VE be compelled to produce. Accordingly, the Special Master recommends that the Court dismiss Evanston's Motion to Compel Goodman's Compliance with the Subpoena (Doc. 158).

E. Evanston's Letter Motion to Conduct Additional Deposition (Doc. 192)

On November 30, 2022, Evanston notified VE that it intended to depose ClearList's corporate designee. (Doc. 192 at 1). On February 2, 2023, VE informed Evanston that it would object to the deposition of ClearList's corporate designee “on the basis that Evanston has taken an excessive number of depositions”. (Doc. 192-2, at 2). Evanston filed a letter motion requesting permission to depose ClearList's corporate designee on February 7, 2023. (Doc. 192).

When a party seeks leave to take an additional deposition, “the court must grant leave to the extent consistent with Rule 26(b)(1) and (2) (regarding the scope of discovery).” Fed. R. Civ. P. 30(a)(2)(A)(i). VE does not object to ClearList's deposition as irrelevant, disproportionate, cumulative, or unreasonably burdensome. (Doc. 193). Rather, VE merely asserts that “Evanston should comply with the Federal Rules and obtain the Court's leave before taking more depositions.” Id. at 2. While Evanston has already taken 18 depositions, each of those depositions was of an individual Evanston identified as a trial witness. (Doc. 194 at 1). As VE admits that ClearList introduced it to potential investors, the deposition of ClearList's corporate designee is likely to yield relevant information regarding VE's claim for consequential damages. (Doc. 193 at 1). Accordingly, the Special Master recommends that the Court grant Evanston's request to depose ClearList's corporate designee.

V. RECOMMENDATION

*9 For the reasons set forth above, the Special Master recommends that the Court:

Respectfully submitted,

AND NOW, this ___ day of ___, 2023, based upon the February 24, 2023 Report and Recommendation of the Special Master, it is hereby ORDERED that:

BY THE COURT

The Honorable Joel H. Slomsky, J.